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June 11, 2019

South Africa: Difficulties Of Financing Farmers During Drought

Commercial banks in South Africa face enormous credit risks due to agricultural producers defaulting on loans and being increasingly unable to provide security for loans.

... 61% of the approximately R160 billion (1US$=14.8ZAR; June 2019) in farming debt in South Africa was owed to commercial banks...many farmers were unable to repay their loans due to failed harvests, ever-increasing input costs, and low livestock prices.
“Agricultural land is typically offered as security by a farmer when applying for credit and a mortgage bond is [then] registered on the property. Decreasing value of agricultural land and the uncertainty about loss of ownership [due to land expropriation without compensation], negatively impacts the value of the collateral held by banks.”

Besides having outstanding debt, defaulting farmers would no longer have access to loan facilities for planting or rebuilding livestock herds.

Many emerging farmers did not own land to use as security for funding, and the limited capital they have would, in all probability, be “swallowed up” during a drought.

Many farmers had left and would continue to leave the sector in search of more lucrative and less risky business opportunities.

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